In the case of a member or former member of the uniformed services of the United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter
73 of title
10, United States Code.

(b) Special rule

(1) Amount excluded from gross income

In the case of any individual referred to in subsection (a), all amounts received after December 31, 1965, as retired or retainer pay shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the contract. The preceding sentence shall apply only to the extent that the amounts received would, but for such sentence, be includible in gross income.

(2) Consideration for the contract

For purposes of paragraph (1) and section
72(n), the term “consideration for the contract” means, in respect of any individual, the sum of—

(A)the total amount of the reductions before January 1, 1966, in his retired or retainer pay by reason of an election under chapter
73 of title
10 of the United States Code, and

(B)any amounts deposited at any time by him pursuant to section 1438 or 1452(d) of such title 10.

1974—Subsec. (a). Pub. L. 93–406, § 2007(a), substituted “United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter
73 of title
10, United States Code” for “United States who has made an election under chapter
73 of title
10 of the United States Code to receive a reduced amount of retired or retainer pay, gross income does not include the amount of any reduction after December 31, 1965, in his retired or retainer pay by reason of such election”.

Amendment by section 2005(c)(10) ofPub. L. 93–406applicable only with respect to distributions or payments made after Dec. 31, 1973, in taxable years beginning after Dec. 31, 1973, see section 2005(d) ofPub. L. 93–406, set out as a note under section
402 of this title.

Pub. L. 93–406, title II, § 2007(c),Sept. 2, 1974, 88 Stat. 993, provided that: “The amendments made by this section [amending this section and sections
72,
101, and
2039 of this title] apply to taxable years ending on or after September 21, 1972. The amendments made by paragraphs (3) and (4) of subsection (b) [amending sections
101 and
2039 of this title] apply with respect to individuals dying on or after such date”.

Effective Date

Pub. L. 89–365, § 1(d),Mar. 10, 1966, 80 Stat. 33, provided that: “The amendments made by subsections (a) and (b) [enacting this section and amending section
72 of this title] shall apply with respect to taxable years ending after December 31, 1965. The amendment made by subsection (c) [amending section
101 of this title] shall apply with respect to individuals making an election under chapter
73 of title
10 of the United States Code who die after December 31, 1965.”

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